Global Market: China bears the brunt of Asia’s crude oil demand cut as Middle East supplies shrink

China is shouldering much of the reduction in crude oil demand across Asia as shipments from the Middle East have fallen sharply following the Iran conflict, with the world’s largest oil importer significantly cutting its purchases in recent months, Reuters reported.

China imported about 8.41 million barrels per day (bpd) of crude oil in July, according to data cited by Reuters, a recovery from the near-decade low of 7.12 million bpd recorded in June. However, July imports were still 24.3% lower than a year earlier.

Combined crude imports for June and July averaged around 7.78 million bpd, down by roughly 4.21 million bpd from the 11.99 million bpd average recorded during the three months through February.


Middle East Supply Disruptions Hit Asian Oil Flows
The sharp decline in imports comes after the United States and Israel attacked Iran on February 28, triggering an escalation in the conflict that effectively disrupted traffic through the Strait of Hormuz, Reuters reported.

Before the conflict, the waterway handled about 20% of global crude oil and refined petroleum product shipments. Although Saudi Arabia and the United Arab Emirates have increased exports through ports outside the strait, overall crude flows from the Middle East have still fallen by around 5 million bpd, according to Reuters.

Most Middle Eastern crude exports are destined for Asia, making the region particularly vulnerable to the disruption.

Data compiled by commodity analysts Kpler showed that Asia imported 22.82 million bpd of crude in July. While that was an improvement from April’s 18.77 million bpd, the lowest level since November 2015, July imports remained about 4 million bpd below the 26.89 million bpd average in the three months before the Iran conflict began.

The data indicate that the decline in Asia’s crude imports over the past two months has been broadly comparable to the reduction in China’s purchases.

Higher Oil Prices Add to China’s Demand Pullback
China’s reduced appetite for crude has also been influenced by oil price volatility. Brent futures surged to a four-year high of $126.41 a barrel on April 30, around the period when cargoes for June and July would have been arranged.

China has historically reduced crude purchases when prices rise, but the scale of the latest decline has been unusually large, Reuters reported.

The country has considerable scope to maintain lower imports because of its large crude inventories. Analysts estimate China’s stockpiles at at least 1.2 billion barrels, although the actual volume could be substantially higher.

This leaves the global oil market facing a key question over how long China can continue acting as the main balancing force for crude demand in Asia.

August Imports May Recover
China’s crude imports are expected to see a modest recovery in August as cargoes that managed to leave the Strait of Hormuz during a brief ceasefire between the United States and Iran reach Chinese ports.

Kpler estimates China’s Middle Eastern crude imports at 2.71 million bpd for August, compared with 2.43 million bpd in July and just 1.42 million bpd in June. June’s figure was the lowest in Kpler’s records dating back to 2013.

Total Chinese crude imports for August are currently estimated at around 5.97 million bpd, although the figure is likely to rise as more cargoes are assessed during the month. Reuters noted that August imports are therefore likely to exceed July levels.

September Could Provide a Clearer Picture
September crude imports may offer a more significant indication of how the supply disruption is affecting China, as Middle Eastern shipments could come under greater pressure following the breakdown of the ceasefire arrangement between U.S. President Donald Trump and Tehran, Reuters said.

Even if efforts to restore shipping through the Strait of Hormuz succeed, it could take weeks for Middle Eastern exporters to rebuild shipments through the waterway and additional time for tankers to reach Chinese ports.

Chinese refiners therefore have two main options: continue limiting purchases of imported crude and draw down their substantial inventories, or compete for supplies from producers outside the Middle East.

The choices made by China’s refiners could have significant implications for global oil prices and crude flows, particularly if Middle Eastern supplies remain constrained for an extended period.

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